Reuters logo
UPDATE 1-IMF chief declares 'IMF is back', doubts linger
April 11, 2008 / 12:31 AM / 10 years ago

UPDATE 1-IMF chief declares 'IMF is back', doubts linger

(Adds British comment in paragraph 5, US comment in paragraph 10)

By Lesley Wroughton

WASHINGTON, April 10 (Reuters) - After three distracting years modernizing the International Monetary Fund, its head Dominique Strauss-Kahn declared on Thursday “the IMF is back” even as criticisms of the changes lingered.

With global finance chiefs likely to sign off on the final two and the most contentious of a string of reforms which got underway in 2006, Strauss-Kahn said the IMF would now try to reassert itself into the forefront of global economic oversight.

“We have to go back to work now that our internal problems are solved,” Strauss-Kahn told a news conference before weekend World Bank and IMF meetings of global finance chiefs.

The fund plans to expand its surveillance of the global economy and Strauss-Kahn said the IMF was well-positioned to provide policy advice on blunting the economic impact from financial crisis.

British finance minister Alistair Darling said on Thursday the IMF needs to develop an early warning system to spot crises, and said it needs to be held to account for its performance if future financial crises are to be prevented.

The institution, which handed out billions of dollars in the past to rescue developing nations from economic peril, has long grappled with its changing role as financial crises have declined and fewer countries have turned to it for funding.

Some member countries want it to step up its monitoring of global economic activity to heighten its profile in a world complicated by the rising influence of emerging powers.

Some of the IMFs biggest reforms -- shifting voting power more toward emerging economic powers and overhauling the IMF’s 62-year-old financial mechanism with spending cuts -- have consumed the institution in the midst of the largest financial crisis since the Great Depression.

Critics said the IMF’s calls for action over the U.S. housing crisis and possible spillovers were ineffective.

Strauss-Kahn fired back, saying the IMF should not be blamed for missing warning signs of the financial crisis because the United States rejected a banking regulatory and oversight method, a Financial Sector Assessment Program, or FSAP, the IMF has suggested.

“The IMF has done extensive analysis of the US financial system and regulations,” a U.S. Treasury spokesman said, “An FSAP is not the only vehicle for doing this,” he added. According to an August 2007 IMF document on the U.S. economy, Treasury agreed to start an FSAP in late 2009.

By the end of April, the IMF’s 185 member countries will vote on its reforms, putting the IMF in better stead to focus on its mission of ensuring global financial stability.

Members are expected to agree to put the IMF’s finances on more solid footing by selling 403 tonnes of gold to fill an income gap and streamlining to fund to pre-Asia crisis levels, including 380 job cuts.

Strauss-Kahn said the changes represent the first deep reforms of a UN institution.

INCREASED VOTING POWER

Even as the reform process nears completion, some of its impact will be phased in over time, such as increased voting power for emerging and developing countries.

“We have to judge this reform not only by its immediate results but (how they are) delivered over the coming five, 10 or 15 years,” he added.

Some emerging economies argue that the 2.7 percent shift in voting power from developed nations to developing ones, which have a larger stake of the world economy, was too little to boost the legitimacy of the IMF.

Still, emerging economies such as India said they would accept the vote reform with reservations because it was the best they could get now while they keep pushing for more.

There is doubt among analysts whether the changes mean the fund will be more effective and whether fast-developing countries, including China and India, will have more influence over decisions and policy advice to member nations.

“The fund should now move quickly to table a serious reform that isn’t just cosmetic; one that gives a real voice to the majority of developing countries,” said Elizabeth Stuart, policy advisor for Oxfam development group.

Oxfam is among five development groups calling on Britain’s Darling to vote against the voting power agreement and push for a deal that gives developing nations a bigger stake.

Domenico Lombardi, president of the Oxford Institute for Economic Policy, said the voting power changes were disappointing to emerging economies who had hoped for more.

“These changes are marginal and they don’t introduce any new dynamic,” said Lombardi who is also a senior scholar at the Brookings Institution. “It doesn’t generate an outcome that would impress real change,” he added.

Lombardi, a former IMF board member, said the IMF was best positioned to use its analytical power because of the broad spectrum of its 185 member countries, but without a proper rebalancing of voting power and changes to its board it would be unlikely to bring about a coordinated policy response.

GOING TO ITS CORE

Looking ahead, Strauss-Kahn said the IMF would scale up its analysis of the U.S. subprime mortgage market crisis and related credit squeeze affecting banks.

“There is no other institution but the IMF likely to work on the linkages between the financial sector and the real economy, which is really what is at stake today,” he added.

It would also expand its surveillance globally and look closer at how one country’s economy affects another, especially the impact of global economic imbalances, such as the current account deficits in the United States and massive surpluses in Asia and oil-producing countries.

Also, the IMF had a responsibility to clarify its role in poor countries and communicate that better to the outside world, Strauss-Kahn said. (Reporting by Lesley Wroughton; editing by Tom Hals and Carol Bishopric)

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below